Flat Fees v. Capped Fees

Early in the class, we talked about some of the perceived problems with the traditional billable hour, and discussed some alternative pricing structures that attorneys have been using. (See, e.g., this article, summarizing the issues). Of course, some attorneys have turned to flat fee pricing, where they quote and bill a client one fee, without an hourly rate. Other attorneys have turned to capped fee pricing, where they still bill an hourly rate, but will not charge the client a total sum above a certain number.

The author of this article asserts that capped fee pricing is almost never a good deal for the attorney or the client. This is because the attorney has no special incentive before reaching the cap, and loses all incentive after the cap. The author asserts that flat fee pricing is always better, as the attorney has an incentive to be quite efficient. I found this to be an interesting read, and gives us an insight into some of the incentives analysis behind various pricing structures.

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